Warehouse Lending in 2024: How To Position Operations for Success

As the spike in interest rates has depressed mortgage originations, how is the warehouse lending segment adapting? Rich Berg, SitusAMC senior director of warehouse and custodial technology, talks about how lenders are moving operations to the cloud to enhance security, scalability, and efficiency, and reduce cost to position themselves for success as the market rebounds. 

What is the biggest challenge with warehouse lenders adapting to the cloud?

For warehouse lenders, adapting to the cloud involves a delicate balance of maintaining continuity in services while leveraging new benefits such as enhanced security, scalability, and efficiency. The goal is to enhance the lender’s operations, not disrupt it. 

For most, the biggest challenge is figuring out the technicalities of transitioning to a cloud environment and fully understanding what it means to onboard a given warehouse lender on a cloud-based system compared to an on-premise system. Oftentimes, lenders will have to “unwind” things that they put in place with their on-premise system and then reconfigure or wind them back up to function optimally in the cloud. With the right technology partner, however, this isn’t as hard as it sounds. 

How has that strategy worked in practice? 

As far as our own cloud strategy, we’ve had great success so far. In fact, we’re approaching the two-year mark since our first client went live with our cloud-based version of ProMerit in February 2022. Since then, we’ve consistently rolled out monthly deployments and updates, and the results and feedback have been overwhelmingly positive. 

Of course, with any large-scale shift in product delivery, there are lessons to be learned and areas we have improved. But for the most part, we’ve had many wins including new feature delivery, improved operational efficiency and overall satisfaction among our clients. By moving to the cloud, they’ve been able to spend less time on manual tasks which has enabled them to move loans off their books faster with less risk, all while reducing their IT infrastructure costs. 

How is the process of deploying updates to the warehouse platform for a warehouse lender? 

First, there needs to be rigorous testing to ensure the platform’s functionality and security. Then comes a detailed review process, which allows for refinements and adjustments. After a formal sign-off takes place, the platform is ready for deployment. The final stage is the use of automated pipelines that efficiently “push” the deployment into the client environment, which ensures a seamless transition and integration into the lender’s workflow. 

What is your outlook for next year in the warehouse lending space? 

Based on the forecasts of experts and what the market is looking like, I suspect warehouse lenders will face additional challenges going into the first part of 2024, with conditions hopefully improving later in the year. Right now, we’re seeing two completely different reactions in the warehouse industry. For some lenders, the plan is to continue exercising caution or pulling back entirely. Others see the current market as an opportunity and are going a hundred miles an hour – with our help. 

Until things get better, I expect both trends to continue. That being said, I think many of our clients are capable of weathering the storm and will be in a good position when the market recovers. As the year progresses, having the foresight to leverage cloud-based technology will help streamline their operations and give them a strong competitive advantage. 

How have ProMerit clients reacted to new cloud-based warehouse lending services and new features?  

When it comes to our cloud-based services, overall, ProMerit clients are really excited about the direction we’re heading. For some existing clients, there have been challenges. For instance, many of our customers have been using our warehouse products for 30 years, so there are a few more specifics involved with transitioning to the cloud. 

For new clients, however, cloud-hosted technology is not necessarily a new concept. Most have grown accustomed to being offered cloud-based products and services, so what we’re doing now makes a ton of sense to them.  

As for the benefits of our cloud-based version of ProMerit, our clients really love being able to access real-time loan updates and seamlessly integrate the platform with their other systems. At a time when data breaches seem to be an epidemic, they also tell us they appreciate that we made data security our top priority and that ProMerit is SOC-2 certified. To me, this kind of feedback is evidence that we’re on the right track. 

Adapted from an interview in Mortgage Orb, published January 29, 2024